As you know, the State Ethics Commission has conducted a preliminary inquiry into allegations that United States Trust Company (USTC) entertained the five of you as municipal treasurers in the hope of obtaining or maintaining banking business, such entertainment involving paying expenses related to Florida golf trips, instate golf excursions and numerous dinners, lunches and beverages.

The results of our investigation, discussed below, indicate that from 1983 through 1985 you appear to have violated the conflict of interest law in this case. Nevertheless, in view of certain substantial mitigating factors, also discussed below, the Commission has determined that

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adjudicatory proceedings are not warranted. Rather, the Commission has concluded that the public interest would be better served by disclosing the facts revealed by our investigation and explaining the applicable provisions of law, trusting that this advice will ensure both your understanding of and compliance with the conflict law. By agreeing to this public letter as a final resolution of this matter, you do not necessarily admit to the facts and law as discussed herein. The Commission and each of you are agreeing that there will be no formal action against you and you have chosen not to exercise your rights to a hearing before the Commission.

I. Facts

1. On November 23,1985, the Office of the Inspector General, in a document entitled "Report on Municipal Banking Relations" (IG Report), disclosed its findings regarding a number of issues involving the manner in which municipal treasurers did business with banks. Included in the IG Report was the following:

The records revealed that banks' municipal calling officers entertain public officials and their guests in a variety of ways, including meals, drinks, theatre performances, sporting events, and golf. Seven Boston-based banks -Bank of Boston, Bank of New England, Boston Safe Deposit & Trust, Patriot Bank, Shawmut Bank, State Street Bank, and U. S. Trust Company- gave to municipal treasurers and other public officials during the period August 1,1982 through 1984 hundreds of gratuities worth in total approximately $138,000. Of this amount, the banks spent over $85,500 on gratuities given to identified municipal treasurers and other public officials, and an additional $52,500 on gratuities given to municipal treasurers and other public officials not identified in banks' entertainment records.

(IG Report, at xi.)[1] The IG Report also found that of the seven banks identified, USTC, based on the records it had submitted, provided more gratuities to certain public officials than any other bank (a little over $40,000 for the period August, 1982 through December, 1984) (IG Report, at xi, chart). (The Commission's investigation, however, found that USTC maintained more complete records than did some other banks; as the IG Report stated, the incomplete and in some instances illegible records maintained by some other banks could "grossly understate the scope and value of banks' gratuities." (IG Report, at 70))

The IG Report also noted:

During 1984 alone, 104 municipal treasurers, almost on-third of all treasurers, apparently accepted gratuities of substantial value from the seven reporting banks... 24 municipal treasurers each were given gratuities totaling over $1,000. Half were given gratuities exceeding $2,000, seven were given gratuities exceeding $3,000, and one was given gratuities exceeding $7,000. (IG Report, at xii).

2. As you know, on June 8,1987, the Commission began a formal inquiry into allegations that each of you had violated the conflict of interest law in your dealings with USTC.

3. In addition to reviewing the IG Report (along with substantial supporting documentation), we conducted an independent examination of USTC's records, and certain municipal records, and conducted numerous interviews under oath. Our investigation determined the following:

a. As indicated in the chart appearing immediately below, from 1983 through 1985 USTC paid expenses of one or more of the five of you on 316 occasions involving a total amount of $11,267. These expenses included lunches, dinners, greens fees, and theatre tickets. The figures in the chart are minimums because, when one of you disputed a USTC record showing an expense payment, we generally gave you the benefit of the doubt and deleted that item.

b. Regarding the Florida trips, USTC paid for golf greens and carts fees, balls, in-state transportation, meals and liquor. The five of you paid for your own transportation to and from Florida and for your hotel rooms. Meals expenses involved the payment of groceries, inasmuch as food was cooked by you in your hotel rooms.

c. For three of you, USTC paid for expenses in connection with Massachusetts golf excursions where those expenses (greens and cart fees, and food and beverage expenses) exceeded $100 for a given event.[3]

d. USTC paid the foregoing through expense accounts provided to its employees in its Municipal Services Department. Most of those expenses were authorized and paid through Richard Brown, Sr., a former vice

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president in charge of the department. All of these expenses were duly noted on monthly expense account reports submitted by Brown and each of his staff members, and reviewed by officials at the bank.

e. When asked why the bank provided these gratuities to municipal treasurers, Brown stated it was because all the banks were selling basically the same services and that each of his competitors was engaged in the same practice. It was USTC's goal to develop a personal rapport with the municipal treasurers to ensure obtaining and retaining their business. According to Brown, USTC was willing to spend a substantial amount a year having him out on the road developing these personal relationships in order to bring municipal money into the bank. Brown stated it was USTC's view that a municipal treasurer did not identify with a bank as much as it identified with the person representing a bank. Brown's way of handling this was to get to know the treasurers personally by taking them out for meals or golf or some other type of entertainment, according to Brown. Brown also noted that those municipal treasurers on whom he spent expense account money at dinners, golf, plays, and other entertainment more often than not did more business with USTC than treasurers who were not receiving such gratuities.

Brown stated that it was he who suggested the initial golf trip to Florida. He stated that the understanding he had with the treasurers was that USTC would pay for the golf and accompanying fees and the cost of dinner each night. He stated that USTC also covered the ground transportation costs in Florida. He admitted that the trips were strictly social, but asserted that there was no quid Pro quo involved in the sense of any understanding that the treasurers would give any preferential treatment to USTC in exchange for the entertainment they received.

f. Each of you acknowledged that you were aware that the purpose of USTC paying for certain golf or meals expenses was that the bank was trying to obtain more of the town's or city's business. At the same time, each of you insisted that you always made your banking decisions on objective grounds and were not in fact influenced by your expenses being paid by USTC.

g. The amount of business that each of you could and did give to USTC was substantial. For example, one of you estimated that you deal with receipts of approximately $100 million dollars a year, all of which have to be deposited in banks at your discretion, subject to fiduciary guidelines. From June, 1983 through January, 1987, your city purchased 54 certificates of deposit from USTC ranging in duration from 14 days to 205 days, with total average balances at USTC of approximately $2,000,000. In addition, the city (like other municipalities dealing with other banks) maintained a non-interest bearing account with USTC during that time period which had an average monthly balance of approximately $225,000.00 before December, 1985 (prior to the IG's Report) and approximately a $20,000.00 monthly balance from December, 1985 through June, 1987.

h. Prior to 1984 USTC had confirmed with its outside public accounting firm that the expenditures for entertainment by its Municipal Services Department were consistent with the entertainment expenses of other banks in this field. In 1984, after becoming aware of the ongoing Inspector General investigation, senior officials at USTC discussed the issue of the foregoing expense accounts. The bank reached no decision to change its course of conduct at that time. According to USTC officials, in the spring of 1985 USTC began to formulate a written Code of Conduct regarding the entertainment of public officials. After the IG Report was made public on November 23,1985, the new Code of Conduct was reviewed for consistency with the recommendations in the Report. On December 5,1985 the Code of Conduct was adopted by USTC and distributed to its employees. The USTC Code of Conduct directs its employees to be sensitive to conflict of interest concerns, and to keep their expenses in dealing with municipal officials to below $50 on any given occasion. It also states that such expenses should not be repetitive.

i. Based on the evidence the Commission has reviewed, it appears that USTC employees have complied with the December 5,1985 Code of Conduct.

j. The Commission is not aware of any evidence indicating any of you have accepted any entertainment of substantial value from USTC after the IG Report was issued on November 23,1985.

k. Brown stated that one or more of you raised the issue of whether it was legal for USTC to pay for a portion of your expenses on the Florida trips. Brown stated that in 1985 he consulted with USTC officials, and then informed one or more of you that in USTC's view it was legal for USTC to pay these expenses.

II. Discussion

As municipal treasurers each of you is a municipal employee subject to the conflict of interest law, G.L c. 268A Section 3(b) of G.L c. 268A, in relevant part, prohibits a municipal employee, otherwise than as provided by law for the proper discharge of official duties, from soliciting or accepting an item of substantial value from anyone for or because of any official act performed or to be performed by such employee.[4]

As the Commission stated In the Matter of George Michael, 1981 SEC 59,68:

A public employee may not be impelled to wrongdoing as a result of receiving a gift or gratuity of substantial value in order for a violation of s.3 to occur. Rather, the gift may simply be a token of gratitude for a well done job or an attempt to foster goodwill. All that is required to bring s.3 into play is a nexus between the motivation for Page 363

the gift and the employee's public duties. If this connection exists, the gift is prohibited. To allow otherwise would subject public employees to a host of temptations which would undermine the impartial performance of their duties, and permit multiple remuneration for doing what employees are already obliged to do a good job.

For s.3 purposes, it is unnecessary to prove that the gratuities given were generated by some specific identifiable act performed or to be performed. It is sufficient that the gratuities are given to the official "in the course of his everyday duties for or because of official acts performed or to be performed by him and where he was in a position to use his authority in a manner which could affect the gift giver." United States v. Standefer, 452 F. Supp. 1178, 1183 (W.D. Pa. 1978) (aff'd on other grounds, 447 U.S: 10(1980)), citing United States v. Niederberger, 580 F.2d 63 (3rd Cir. 1978). See also United States v. Evans, 572 F. 2d 455(5th Cir. 1978). As the Commission explained in Advisory No. 8:[5]

In fact, even in the absence of any specifically identifiable matter that was, is or soon will be pending before the official, s.3 may apply. Thus, where there is no prior social or business relationship between the giver and the recipient, and the recipient is a public official who could affect the giver, an inference can be drawn that the giver was seeking the goodwill of the official because of a perception by the giver that that public official's influence could benefit the giver. In such a case, the gratuity is given for as yet unidentified "acts to be performed."

In {Commission Advisory No. 8} the Commission declared that gratuities to public officials such as tickets to theatre or sporting events which exceed $50 would be considered "substantial value." The Commission further stated that a gift of several tickets, each valued at less than $50, is a gratuity of substantial value if the total value of the tickets exceeds $50. Finally, the Commission noted,

A s.3 issue may arise if there is a standing offer to be accepted at any time for tickets. It is likely that any such offer would be deemed to involve substantial value. Similarly, if there is a matter of periodically giving a public official tickets, the course of conduct will be evaluated as to its value. This would be the case, for example, if someone gave a public official a ticket to an entertainment event each and every weekend.

The facts set forth in this letter, if proven, would appear to establish a violation of s.3(b) by each of you. Thus, as no one disputes, USTC on numerous occasions paid for golfing expenses in Florida and Massachusetts for each of you where those expenses substantially exceeded $50. Indeed, for three of you those expenses exceeded $1,000. Consequently, USTC did provide you with items of substantial value.

In addition, the evidence would indicate that at least as to Treasurers Collas and Scafidi, USTC paid for your expenses on a sufficient number of instances within a short time period that even though each payment was less than $50 in value, the payments should be aggregated. Therefore, USTC gave these two treasurers items of substantial value in this respect as well. Thus, the Commission views USTC's having provided two treasurers with 138 and 78 gratuities in a two-year period as indicating either that those treasurers had a standing offer to have USTC pay for their expenses, or, alternatively, that the pattern of payments was such that it should be considered as a course of conduct within the meaning of Advisory No. 8.

That there was a standing offer is supported by Brown's statement that whenever he saw a treasurer, it was his standard procedure to invite the treasurer for lunch or dinner. One of you stated that you knew that you could have a lunch or dinner whenever bank officials visited you. It is also reasonably clear from the evidence that each of you knew that you could have Brown pay for a round of golf at USTC's expense at any time, including food and beverages afterwards.

The numbers are also probative. For example, 138 gratuities over a two-year period indicate that USTC was paying Treasurer Collas's expenses more than once a week. In addition, the total value of those 138 occasions was $4,253, a total which is again suggestive of a standing offer.

Alternatively, in light of the frequencies of the expense payments for these two treasurers, the Commission would conclude that USTC was involved in a course of conduct with each treasurer which involved substantial value. Therefore, whether considered a standing offer or a course of conduct, USTC was giving these two treasurers items of substantial value by virtue of the numerous occasions on which it paid for their entertainment expenses, even where those individual occasions did not exceed $50.[6]

The facts would also indicate that there was a clear connection between USTC paying for these expenses and USTC's objective that these municipal treasurers would either continue or expand their town's or city's business with USTC. Thus, former vice president Brown stated that by entertaining these treasurers, he could establish personal relations with each of you, which in turn would likely result in your doing more business with USTC. In other words, USTC's motive in expending these monies was to foster goodwill. That is precisely the motive or intent which lies at the heart of a s.3 violation. Thus, the prohibited connection or nexus between these entertainment expenditures and your duties would be established by these facts.[7]

On the other hand, the Commission has not found any evidence that any of you provided USTC with preferential

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treatment as a result of these expenditures. In addition, there is no evidence that any of you obtained personal loans from USTC. Nor is there any evidence that any of you entered into any kind of corrupt agreement by which USTC would provide payments in exchange for specific official acts to be taken by one of you. Had the Commission found substantial evidence of preferential treatment or of a corrupt agreement, this matter would not have been resolved with a public enforcement letter.[8]

It could be argued that to the extent these expenses were necessary and appropriate to legitimate business transactions, such as a business lunch to discuss a banking proposal, then the expenditures should not be considered unlawful gratuities. There is some support for this view. See, e.g., State v. Prybil, 211, N.W. 2d 308 (Iowa 1973). The Commission, however, has taken the position that a public employee cannot accept private reimbursement for his business expenses. See, e.g., EC-COI-88-5.[9]

The Commission precedents, such as EC-COI-88-5, deal with vendors paying for business trip expenses, including transportation, lodging, meals and so forth. The Commission has not, however, addressed the specific issue of a meal per se, and, more specifically, the so-called "business lunch." For purposes of s.3, there is no logical distinction between transportation and lodgings on the one hand and meals and beverages on the other, so long as "substantial value" is involved. Therefore, the Commission takes the position that vendors should not directly pay for of the expenses of public officials whether or connection with conducting official business, if those payments involve substantial value. The potential for abuse is too great in those situations. Instead, either the public agency in question should pay for the official's expenses, or consideration should be given to whether the statutes and ordinances which apply allow for the vendor to pay for the public official's expenses by making a payment to the public treasury specifically earmarked for those expenses. In turn the public official can have his expenses paid for in the ordinary way. (See, e.g., G.L. c. 41, s.53A)

In any event, there are several important mitigating factors which point to a public enforcement letter, rather than some more serious sanction, as being the proper resolution of this matter. One, prior to the IG Report, the practice of banks paying for public officials' entertainment expenses, including meals, beverages, sporting events, theatre tickets, and golf, was clearly a widespread practice, and one which remains acceptable in the private sector. That the practice was widespread is well- illustrated by the IG Report noting that 104 treasurers received such gratuities, and all seven banks which were contacted appear to have been involved in the practice.[10] Two, you assert, and the Commission has no evidence to the contrary, that you did not intentionally violate the law. Further, the evidence indicates that at some point you made an effort to determine whether these payments were legal, and you were told they were.[11] Three, until today, the Commission has not had the occasion to articulate a position regarding private parties paying for meals and beverages incidental to the transaction of business, nor had the Commission, prior to its May, 1985 Advisory No. 8, indicated it would aggregate items of value to meet the substantial value threshold.

The Commission's decision to allow you to resolve this matter with a public enforcement letter should not be construed as indicating it does not consider the issues raised by your conduct to be serious. But for the mitigating factors just described, the Commission would have pursued this matter through adjudicatory proceedings. It is of critical importance that the public have complete confidence that municipal treasurers make investment decisions, often involving millions of dollars of public funds, in a manner which best serves the public interest. The public has a right not only to insist on actual impartiality and objectivity in the performance of such fiduciary duties, but also the right to expect that municipal treasurers will avoid even the appearance of impropriety in dealing with banking institutions.[12] When a bank pays for any of the personal expenses of a municipal treasurer, but particularly when those expenses climb into the thousands of dollars and involve payments occurring as frequently as once a week, then there is at least the appearance of impropriety, and enormous potential for real abuse. Based on the evidence, it appears that you and USTC have stopped this practice. The Commission trusts that all other treasurers and banks have done so as well.[13]

Disposition

Based on its review of this matter, the Commission hasdetermined that the sending of this letter should be sufficient toensure your understanding of and compliance with the conflict law.This matter is now closed.

[1] The "gratuities", referred to in the IG Report are for the mostPart entertainment expenses.

[2] The Commission's investigation of this matter was delayed whilethe Department of the Attorney General reviewed the issues raisedby the IG Report. It was subsequently agreed that the matter shouldbe resolved by the Commission. After careful consideration theCommission chose to focus its inquiry on those treasurers whoallegedly received each of the following. (1) out of state golfexpenses; (2) in-state expenses greater than $100; and (3) expensespaid on 50 or more instances occurring from 1983 through 1984.Application of these criteria resulted in the Commissioninvestigating five municipal treasurers (Plymouth Treasurer AndrewCollas, Newton Treasurer Theodore L. Scafidi, Franklin TreasurerAlbert R Brunelli, Everett Treasurer Frank E. Lewis, and FraminghamTreasurer Donald Croatti). Finally, the Commission chose to focuson the relationship between those five treasurers and USTC because(a) most of the expense payments involving those five treasurerswere attributable to USTC, and (b) according to the IG report, asdiscussed above, USTC by far paid more expenses for municipaltreasurers than any other bank (Again, as stated above, apparentlynot all of the banks submitted adequate records.).

[3] Treasurer Collas had such expenses paid by USTC on twooccasions involving a total payment of $217 by USTC. TreasurersScafidi and Brunelli each attended one Massachusetts golfing eventwhere their expenses paid for by USTC exceeded $100 ($108 each).

[4] Conversely, G.L. c. 268A, 3(a), in relevant part, prohibitsanyone, otherwise than as provided by law for the proper dischargeof official duties, from offering or giving an item of substantialvalue to a municipal employee for or because of any act performedor to be performed by such employee.

[5] Issued May 14,1985.

[6] Some treasurers have raised an issue as to whether the expensesof a treasurer's guest should properly be attributed to thetreasurer for purposes of determining whether he receivedsubstantial value. Section 3 does require that the item ofsubstantial value be for the municipal official as opposed tosomeone else. Compare 2 (bribes) which is not so limited. in theCommission's view, however, where presumably the treasurer wouldhave had to pay for his guest's expenses if USTC did not pay forthem, the value of USTC paying for the treasurer's guest can beattributed to the treasurer.

Certain treasurers have also an issue as to the unfairness ofdividing a total meal cost by the number of people present todetermine the value the treasurer received. Treasurers have statedthat on some occasions they may not have eaten as much as theothers present, or they may not have eaten anything but only hada drink, or where there was a large liquor bill, they may have hadonly had soft drinks. In the Commission's view, it is appropriateto infer that when a group participates in a entertainment event,whether it be golf, a meal, or drinks, the expenses are generallyshared equally. That inference, of course, could be overcome by thetestimony of those present.

[7] These facts would also raise issues under G.L. c..268A, 23(theso-called "code of conduct" section). Section 23, in relevant part,prohibits a state employee from using or attempting to use hisposition to secure an unwarranted privilege of substantial valueand/or from acting in a manner which would cause a reasonableperson having knowledge of the relevant circumstances to concludethat any person can improperly influence or unduly enjoy his favorin the performance of his official duties. By accepting expensepayments from a bank with which his city or town has an officialbusiness relationship, a municipal treasurer's conduct would runafoul of these s.23 concerns.

[8] The Commission can impose a fine of up to a $2,000 fine foreach violation of G.L c.268A. The Commission can also bring anaction in Superior Court under G.L c.268A, s.21(b) to seek toobtain up to three times the amount of any unjust enrichmentderived by any party from having violated the conflict of interestlaw.

[9] See also the Office of Governmental Ethics Memorandum datedOctober 23,1987, stating in part, "In general, an Executive branchemployee's acceptance of 'one-on-one', meals from someone who hoststhat individual because of his or her government position isprohibited, regardless of the cost of the meal.

[10] In singling out the five of you and USTC for public scrutiny,we are mindful that many others appear to have violated thegratuities section of the conflict law, and thus fairnessconsiderations should play a role in the disposition of thismatter.

[11] While these are mitigating factors, they are not defenses tothe violation itself. Thus, the Commission has consistently madeit clear that ignorance of the law is not a defense to a violationof G.L c. 268A In the Matter of C. Joseph Doyle. 1980 SEC 11,13 Seealso Scola, 318 Mass 1,7 (1945).

In addition, the only advice on which a municipal employee may relyas a defense to a G.L c. 268A violation is advice obtained from theCommission, or from town counsel where town counsel's opinion hasbeen reviewed by the Commission pursuant to 930 CMR 1.03(3) See,e.g., In the Matter of Ernest Laflamme, 1987 SEC 329.

[12] As the Supreme Judicial Court said in Board of Selectmen ofAvon v. Linden, 352 Mass. 581,583(1967): "The legislature found itadvisable to enact a conflict of interest law. This was as much toprevent giving the appearance of conflict as to suppress alltendency to wrongdoing. [T]he legislature did not see fit torely upon the restraints of decency, propriety and fair play, upon thelaw of libel, or upon the power of the electorate to eliminateunworthy office holders."

[13] The Commission does not mean to imply that it would notinvestigate and take sterner action against anyone who was foundto violate s.3 in the respects outlined above after the IG Reportwas issued but before the date of this letter.

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